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1
INTRODUCTION
Research Problem
The new Competition Act, 2002 was enacted to ensure free and fair competition in the market
by prohibiting anti-competitive agreements, abuse of dominant position and combinations
likely to have appreciable adverse effects on competition within the relevant market in India.
The competition act, 2002 mainly deals with three kinds of agreements like anti-competitive
agreement, abuse of dominance and regulation of combination.1 In India Merger as a part of
the combinations has been defined in section 5 of the competition act and the provisions
relating to the regulation of the combination is defined in section 6 of the Act. Competition
Commission of India is a significant body of the Government of India which is accountable
for the enforcement of the Competition Act, 2002. It is empowered to take cognizance of the
anti-competitive practices prevailing in the Indian market. The factors considered for
evaluating the effect of competition for the regulation of the combination are contained in
Section 20(4). Further, it has the power to investigate, pass orders and impose penalties.
Further, in case of appeal, the central government is empowered under the act to constitute
Competition Commission Appellate Tribunal to hear any appeal or any direction issued or
decision made by the Competition Commission.
Scope of Study
This project aims to understand the importance of the Competition Commission of India and
the significant role played by it in cases of Mergers and Acquisitions. It also extends to
explain the powers, responsibilities and liabilities of the Commission un the Competition Act,
2002.
Objectives
The following are the objectives that are aimed to be achieved from this research project:
1
Devesh Pandey, MERGERS AND ACQUISITIONS (COMBINATIONS) UNDER THE COMPETITION
ACT, 2002. (2015). Also available at: http://cacscorporatelaw.blogspot.in/2011/09/mergers-and-acquisitions-
combinations.html (Last accessed on 14th March, 2017)
2
3. To critically evaluate the powers given to the Competition Commission under the
Competition Act.
4. To understand the Appreciable Adverse Effect on Competition and analyse the factors
considered by the Commission in such cases.
Review of Literature
For the purpose of this research, the following articles were referred:
2
Rohit Choudhary, EFFECT OF COMPETITION LAW ON MERGERS AND ACQUISITION (23rd
September, 2011) also available at http://www.legalindia.com/effect-of-compitition-law-on-mergers-and-
acquisition/ (Last accessed on 24th March, 2017)
3
Avaantika Kakkar and Aayush Tainwala, COMPETITION COMMISSION OF INDIA'S MERGER
CONTROL REGULATIONS (15th July, 2015) (Last accessed on 25th March, 2017)
4
Vinod Dhall, COMPETITION LAW AND POLICY AND CORPORATE GOVERNANCE (2006)
5
Indian Bar Association, ROLE OF COMPETITION COMMISSION IN CONSUMER WELFARE (2013) also
available at: http://www.indianbarassociation.org/wp-content/uploads/2013/02/The-Role-of-Competition-of-
India-in-Consumer-Welfare.pdf (Last accessed on 23th March, 2017)
3
The significance of the Competition Commission of India6-:
The success or failure of CCI will have no small significance for the Indian economy, but
failure cannot be afforded. While this is an accepted fact, this article goes on to elaborate
and provides reasons for why this is true. It uses case laws and refers to the modern
approach of governments towards economies in order to show the significant role that the
Competition Commission of India plays.
Competition Commission CasesA Compendium Of CCI Cases From 2009-20147
This author in this book states that awareness about competition law has increased
manifold in the last few years especially in the wake of imposition of extremely heavy
fines on big companies in different sectors of the economy. The book explains how the
outcome for the same has been an enhanced appetite to know more about the subject as
well as the institution responsible for its enforcement, and its development in the form of
decided cases which come before the Competition Commission of India (CCI) for
adjudication. The presentation of this book in a tabular format is a first of its kind to
provide a quick reference to all those who require an overview of the entire landscape of
developments in competition law in relation to various sectors.
Sridharan and Pandian Guide to Takeovers and Mergers8
This book deals with the law on mergers and amalgamations regarding corporate as well
as tax law. They focus specially on contemporary issues like the Takeover Code,
demergers, accounting standards issued on the subject, etc. It presents pertinent cases in a
concise and systematic manner to ensure that practitioners understand clearly and quickly
the scope and significance of rulings laid down by the Courts in relation to mergers,
demergers and schemes involving debt and capital restructuring.
Research Methodology
This project studies the importance of Competition Commission in India (CCI) and the role it
plays in mergers and acquisition. In order to analyse the subject matter of the project, the data
collected and used in is secondary data. This data has been collected from various reliable
sources like books, websites, journals, etc. Therefore, doctrinal method has been adopted for
the said project.
6
Anupam Sanghi, THE SIGNIFICANCE OF THE COMPETITION COMMISSION IN INDIA (16th June,
2014) (Last accessed on 24th March, 2017)
7
K. K. Sharma, COMPETITION COMMISSION CASESA COMPENDIUM OF CCI CASES FROM 2009-
2014 (ed.1st) pp. 4
8
Sridharan et al, SRIDHARAN AND PANDIAN GUIDE TO TAKEOVERS AND MERGERS, (2010) pp 56
4
Also, opinions of the researchers have been provided in this project and therefore, it may be
possible for certain amount of biasness or prejudice to subsist but it must be noted that it is so
without the intention of researchers.
Hypothesis
The competition commission is not just an overseer of combinations and trade practices but
also performs the role of being a regulator and an ombudsman.
Research Question
1. Why is there a need to have a separate body to govern mergers and acquisitions?
2. Whether Competition Commission of India is a regulatory body or a supervisory
body?
3. Whether Competition Commission of India has only nominal powers?
5
THE COMPETITION COMMISSION OF INDIA
The main objective of competition law is to promote economic efficiency using competition
as one of the means of assisting the creation of market responsive to consumer preferences.
The advantages of perfect competition are three-fold: allocative efficiency, which ensures the
effective allocation of resources, productive efficiency, which ensures that costs of
production are kept at a minimum and dynamic efficiency, which promotes innovative
practices13.
The Commission comprises a Chairperson and six members. Devender Kumar Sikri is the
current Chairperson of the CCI.
9
An Act to provide, keeping in view of the economic development of the country, for the establishment of a
Commission to prevent practices having adverse effect on competition, to promote and sustain competition in
markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in
markets, in India, and for matters connected therewith or incidental thereto
10
http://www.cci.gov.in/about-cci (last accessed on 29th March, 2017)
11
Ibid
12
http://www.cci.gov.in/vision-and-mission (last accessed on 28th March, 2017)
13
Supreme Court of India Judgment in Civil Appeal No. 7999 of 2010 pronounced on 9 September 2010
6
The remaining Six members of the CCI are14:
1. Justice G. P. Mittal
2. S.L. Bunker
3. Sudhir Mital
4. Augustine Peter
5. U. C. Nahta
Competition Act, 2002 has entrusted with the Commission with several duties. The chief
duties of the CCI are:
Further, the Competition Act, 2002 states that the CCI must persuade new entities to enter in
the market for producing better quality of good and delivering better services. It also states
that the Competition Commission is also required to give its opinions on vital matters
affecting competition or any reference made to it by the statutory authority. It is also the duty
of the competition commission to create consciousness among the public and impart training
facilities on competition issues16.
CCI is accountable for the enforcement of the competition Act, 2002. It plays an imperious
role in preventing adverse effect on competition in India. Competition commission is a
market regulator of all the sectors. It essentially ensures that in curbing the anti-competitive
practices which is disadvantageous to the competition and it is further, empowered to take
cognizance of the same in the current Indian market.17
14
http://www.cci.gov.in/about-cci (last accessed on 29th March, 2017)
15
Rajinder Kumar, ROLE AND FUNCTIONS OF CCI (Competition Commission of India Website) Also
available at http://cci.gov.in/images/media/presentations/RajinderPresen041011.pdf
16
Section 18, Competition Commission Act, 2002.
17
Roger J. Van Den Bergh and Peter D. Camesasca, (Ed 2nd) (2006)
7
ROLE OF COMPETITION COMMISSION IN MERGERS AND
ACQUISITIONS
This Chapter is divided into three parts. The first part deals with the nature of
Competition Commission of India. The second part elucidates the regulations under the
competition act which govern combinations while the final part highlights the uncertainties in
the working of the commission.
The jurisdiction of the Competition Act extends to all sectors of the economy and
sectors regulated by sector-specific laws as telecommunication, electricity regulator, etc. are
also included. In India, the Competition Act, 2002 does contain a provision for mutual
consultation between sector regulators and the Commission but the provision is relatively
weak because it is confined only to cases where a proceeding is pending before the sector
regulator and the party raises a competition issue. Prior to Amendment Act, the Competition
Act only conferred an option on any statutory body to make a reference to CCI with respect
to a decision which the statutory authority has taken or proposes to take, is or is likely to be
contrary to any of the provisions of the Act.
18
Available at http://tradeandcompetition.blogspot.com// (last accessed on 30th March, 2017)
19
See section 2(v) of the Act, Statutory authority has been defined to mean any authority, board, corporation,
council , institute , university or any other body corporate established by or under any Central , State or
Provincial Act for the purpose of any services or markets therefore or any matter connected therewith or
incidental thereto .
8
The Amendment Act provides powers to statutory regulators to make suo-motu
reference to CCI on competition issues20 in addition to the present provision of making
reference, when any party in a dispute before it makes such request. The Act previously
provided that statutory authorities could make reference of matters to the CCI only when a
party before the statutory authority raised an issue. In order to minimize contradictions
between stands taken by the CCI and statutory authorities and to enhance co-operation
between statutory authorities and the CCI the amendments has made changes to enable the
CCI to make references suo motu to regulatory authorities and vice versa. The Commission,
on receipt of a reference, shall give its opinion to such statutory authority within sixty days of
receipt of such reference. The statutory authority shall consider the opinion of the
commission and thereafter, gives its finding, recording therefore, on the issue referred to in
the opinion21.
The essence of the interface between the Commission and sector-specific regulators in
India lies within sections 1822, 2123, 6024, and 6225 of the Competition Act. Section 60 of the
Competition Act is the usual non-obstante provision asserting the supremacy of competition
legislation within the domain of competition enforcement, and both sections 60 and 62 are
couched in mandatory language, yet, ironically, section 62 declares that competition
legislation ought to work along with other enactments. Even after the Commissions opinion is
received, the sector regulator may pass an order as it deems fit. This leaves wide discretion
with the regulator. Thus, there should be some framework for co-ordination between the
sectoral regulations and the Competition Commission of India
20
Section 21 (1) of the Competition Act
21
Section 21 A, inserted by competition (Amendment) Act, 2007
22
Duties of the Commission
23
Reference by Statutory Authority
24
Sec 60 of the Act says, the provisions of the Act shall have effect notwithstanding anything inconsistent
therewith contained in any other law for the time being in force. Sec 62 of the Act says The provisions of this
Act shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force.
25
Application of Other laws not barred.
9
them and efficient management of sector specific issues / problems at a micro level is equally
critical in ensuring effective competition in the market.
In fact, the Report of the High-Level Committee on Competition Policy and Law,
1999, emphasized that although it does not directly form part of the competition law,
legislation regarding various regulatory authorities falls under the larger in this regard was an
aspect to be addressed26. Thus, one of the main differences between other sect oral regulator
and the Competition law is that a sect oral regulator may not have an overall view of the
economy as a whole and may tend to apply yardsticks which are different from the ones used
by the other sect oral regulators. In other words, there is a possibility of the lack of
consistency across sectors. On the other hand, the CCI will be able to apply uniform
competition principles across all sectors of economy.
Regulations
The Competition Act primarily covers:
Under Section 3227 of the Competition Act, the CCI has been conferred with extra-
territorial jurisdiction. This means that any acquisition where assets / turnover are in India
and exceed specified limits would be subject to the scrutiny of the CCI, even if the acquirer
and target are located outside India.
Section 528 of the Act provide the definition of the term combinations. It explains that:
26
The Report of the High-Level Committee on Competition Law and Policy, 2000
27
Acts taking place outside India but having effect on competition in India
28
Combinations
10
1. If the parties to the acquisition acquire control over the voting rights, or the shares or
assets of the enterprise and the value of the asset is more than Rs. 1000 crore or the
turnover is more than Rs. 3000 crore or where the value of the asset in or outside
India is more than US $500 million.
2. When any group acquires an enterprise, and control the shares, voting rights and
assets of the enterprise in India where the value of the asset is more than Rs. 4000
crore or the turnover is more than Rs. 12000 crore, or when the aggregate value of the
asset is US $2 billion in or outside India.29
3. When a person acquires control over an enterprise and directly or indirectly exercises
control over another enterprise engaged in production, distribution, or trading of a
similar or identical or substitutable services.
4. When the value of the asset of the enterprise after amalgamation or merger is more
than Rs. 1000 crore, or when the aggregate value of the asset within or outside India is
more than US $ 5 million.
5. Where the group after merger or amalgamation would belong to the enterprise and it
would have the assets of the value of more than Rs. 4000 crore or the aggregate value
of the assets is more than US $2 billion within or outside India.30
29
Mr.M.Govindarajan, REGULATION OF COMBINATION UNDER COMPETITION ACT. Available At
https://www.Taxmanagementindia.Com/Visitor/Detail_Article.Asp?Articleid=1113 (last accessed on 30th
March, 2017)
There are no sources in the current document.(Last visited on March 27, 2017)
30
H.K.Saharay, COMPETITION LAW, (Universal Law Publication Co. Pvt. Ltd., New Delhi, 2012)
11
Financial thresholds
Competition Act prescribes financial thresholds linked with assets / turnover for the
purposes of determining whether a transaction is a combination, and CCI approval is
required only for combinations. Recently, the CCI has increased the thresholds for the
purposes of section 5 of the Competition Act31. A transaction that satisfies any of the
following tests is a combination:
Assets Turnover
OR
Assets Turnover
Group OR
>USD 1bn with
Worldwide with >USD 12bn with at least
Level at least >1000
India Leg >3000 INR Crore in India
INR Cr in India
Companies that fulfil the following criteria can avail the de minimus exemption32
whereby, they are exempted from section 5 of the Competition Act for a period of 5 years:
31
Notification no. S.O. 675(E)
32
Supra note 27
12
Pre-Filing Consultation
Any enterprise which proposes to enter into a combination may request in writing to the
CCI, for an informal and verbal consultation with the officials of the CCI about filing such
proposed combination with CCI. Advice provided by the CCI during such pre-filing
consultation is not binding on the CCI.
Mandatory Reporting
Section 633 makes void any combination which causes or is likely to cause an AAEC34
within India. Accordingly, Section 6 of the Act requires every acquirer to notify the CCI of a
combination within 30 days of the decision of the combination or the execution of any
agreement or other document for acquisition and seek its approval prior to effectuating the
same. The CCI must form a prima facie opinion on whether a combination has caused or is
likely to cause an AAEC within the relevant market in India, within 30 days of filing. The
combination will become effective only after the expiry of 210 days from the date on which
notice is given to the CCI, or after the CCI has passed an order approving the combination.
Multiple tranches
To ensure that all the combinations arising from small individual transactions which
otherwise alone may not qualify the financial thresholds but along with inter-connected or
inter-dependent transactions may qualify are notified to CCI. Combinations Regulations
provide that in a situation where the ultimate intended effect of a business transaction is
achieved by way of smaller individual transactions which are inter-dependent on each other,
one or more of which may amount to a combination, a single notice, covering all these
transactions, may be filed by the parties to the combination35. Further, it is mandatory for
companies to notify CCI if the substance of the transaction and any structure of the
transaction(s), comprises a combination.
33
Regulation of Combinations
34
Appreciable Adverse Effect on Competiton
35
Regulation 9(4)
13
CASES
Mr. M.P. Mehrotra alleged that the dominant position i.e. a 45% market share after their
merger, which will be held by Kingfisher Airlines and Jet Airways would enable them to
float schemes such as ticket booklets (multiple tickets at cheaper prices) which other airlines,
not being in a dominant position, cannot afford resulting in survival issues for them. Such
schemes would end up wiping out the competitors from the market.
The Commission considered this, decided that there exists a prima facie case in the matter,
and directed the Director General to investigate into the matter and submit his investigation
report to the Commission within 45 days of receipt of the order. On application by the
respective airlines, Supreme Court of India refused to interfere. The Supreme Court clarified
the powers, functions and jurisdiction of the CCI and made it clear that it can investigate
agreements that pre-date the Competition Act of 2009.
This decision is significant not only because it allowed the CCI to proceed with its
investigation, but also because it sends out a clear message that it is unwilling to interfere
with the investigation of the CCI.
In October 2008, Jindal Steel and Powers Ltd. informed the CCI that Steel Authority of India
(SAIL) had entered into an exclusive supply agreement with Indian Railways for the supply
of rails. SAIL allegedly abused its dominant position in the market in contravention of
Section 4 (1) of the Act and Section 3 (4) of the Act, which prohibits certain exclusive supply
agreements. On receiving this information, Commission directed SAIL to file a reply. When
SAIL failed to do so within the time limit, the Commission, believing that a prima facie case
existed against SAIL, passed an order directing the Director General to start investigation into
the matter. The Commission however permitted SAIL to file its response to the Director
General during the course of the investigation.
SAIL challenged that order before the COMPAT37 on grounds that the order was contrary to
the principles of natural justice SAIL wasnt given an extension of time to file its reply and
36
Case Number 4 of 2009
37
Competition Appellant Tribunal
14
was denied the its right to be heard. The COMPAT, on 15th February 2010, stayed the
Commissions order and dismissed the Commissions application for impleadment in the
appeal, stating that the CCI was neither a necessary party, nor a proper party in appellate
proceedings before the tribunal.
1. All orders passed by the Competition Commission are not subject to appeal. Only
orders specifically made appealable under the Act. [Section 53 A (1) (a)] will be
treated as such. An order of this nature (forming a prima facie case and directing the
Director General to start investigation) is a direction simpliciter, NOT an appealable
order.
2. At the stage of forming a prima facie case, there is NO statutory duty on the
Commission to give notice or grant hearing to any party. There is also no need to
record any detailed reason while passing such an order for starting investigation,
though keeping in mind the principles of natural justice, some minimum reasons
should be recorded.
3. The Commission, in cases where an inquiry has been initiated suo motu, shall be a
necessary party, and in all other cases, a proper party in proceedings before the
Appellate Tribunal.
An important case decided in 2014 was a challenge to the Jet-Etihad Case. The combination
was approved by CCI in November 2013. While examining the proposed combination, views
of Air India were solicited which raised certain concerns. These were considered and
disposed off when CCI finally approved the proposed combination by way of an order under
Section 31(1) of the Act An appeal under Section 53B was made to COMPAT challenging
the Jet-Etihad Order by a public citizen. COMPAT dismissed the appeal on the point of locus
standi without examining the merits of the Jet-Etihad Order. Although Section 53A provides
that any person, aggrieved may challenge an order of CCI, COMPAT interpreted any
person to mean, a person. Thus, it widened the scope of the CCI.
38
http://www.nishithdesai.com/information/research-and-articles/nda-hotline/nda-hotline-single-
view/article/competition-commission-of-india-approves-jetetihad-
combination.html?no_cache=1&cHash=1caec18e8828475d9184e79621d6d182 (last accessed on 20th March,
2017)
15
Alok Industries and Grabal Alok Impex39:
The scope for market domination through vertical linkages was analyzed in a recent case
involving Alok Industries (AIL) and Grabal Alok Impex (GAIL) both belonging to the same
group and under the same management, having operation in textile industries with the
difference that AIL manufactures apparel fabrics, home textiles, garments and polyester yarn.
GAIL produces embroidered products. The concern of the Commission was whether the
combination would enable a dominant company to emerge. Investigations and analysis
revealed that although the parties are in the same broad market the individual products do not
overlap and are not identical or substitutable products. Moreover, both parties are involved in
independent activities including sourcing of raw materials have minimal vertical
relationships.
Another case of merger analysed by the Commission was of Nippon Steel Corporation and
Sumitomo Metal, the former engaged in the sale of steel products and the latter in the
business of manufacturing and sale of variety of iron and steel products, NSC being present
in India through its group companies which included Nippon Steel India Pvt. Limited. By this
proposed merger, the parties would have entered into an integration agreement in order to
integrate all of their business including the core business of steel making and steel
fabrication. In India, the operations of the parties to the combination mainly related to the
sale of various types of steel products. The Commission analysed that the parties were
engaged in manufacturing of various steel products ranging from crude steel to finished steel.
Steel product may be distinguished on the basis such as composition, application, and
physical characteristics. Based on the above, the parties were found to have eight similar
products. Given that the consumption of these 8 types is less than 1%, the Commission
believed the proposed merger, may not change substantially, even if the relevant market in
respect of the steel products which the parties sold, was not conclusively defined.
39
Dr.Geeta Gouri (Member, Competition Commission of India) also available at:
http://www.cci.gov.in/sites/default/files/speeches/CAM.pdf?download=1 (last accessed on 27th March, 2017)
40
Combination Registration no. C-2011/10/07
16
CONCLUSION
In some countries, the advocacy role is supported by a statutory provision in the law, as
in India, while in some other countries; it is undertaken as an administered measure. The CCI
has been undertaking work relating to competition advocacy and institution building. Thus,
the Commission can function as stated above easy only if the Government provide the
required infrastructure. Thus, though the CCI has partially become functional with effect
from May 2009 but several questions remain unanswered although the Act has had a
17
thorough Scrutiny of the Apex Court and substantial amendment made thereafter by the
Parliament before it could become functional.
SUGGESTION
An Inter-Agency Forum could be established wherein the CCI and the sectoral regulators can
meet and discuss policy matters. In case of an overlap, there could be a mechanism to decide
which agency will take the lead, so that businesses do not have to deal with multiple
regulators. This will also promote consistency in the regulatory and analytical approach to
competition issues. From the Merger commission, at least two members can be appointed to
deal with cases of merger, amalgamations, acquisition and takeovers.
18
BIBLIOGRAPHY
Statutes
Websites
1. http://www.cci.gov.in/vision-and-mission
2. http://cci.gov.in/images/media/presentations/RajinderPresen041011.pdf
3. http://www.indianbarassociation.org/wp-content/uploads/2013/02/The-Role-of-
Competition-of-India-in-Consumer-Welfare.pdf
4. http://www.cci.gov.in/about-cci
5. https://www.Taxmanagementindia.Com/Visitor/Detail_Article.Asp?Articleid=1113
6. http://www. nishithdesai.com/information/research-and-articles/nda-hotline/nda-
hotline-single-view/article/competition-commission-of-india-approves-jetetihad-
combination.html?no_cache=1&cHash=1caec18e8828475d9184e79621d6d182
7. http://www.cci.gov.in/sites/default/files/speeches/CAM.pdf?download=1
Books
Notifications
19
Journals and Articles
20